X hits on this document

489 views

0 shares

6 / 26

Chapter 5, Solutions        Cornett, Adair, and Nofsinger

FV = \$1,000 × (1 + 0.06)5 + \$1,200× (1 + 0.06)4 + \$1,200 × (1 + 0.06)3 + \$1,500× (1 + 0.06)2

FV = \$1,338.23 + \$1,514.97 + \$1,429.22 + \$1,685.40 = \$5,967.82

LG15-18 Future Value Given a 7 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of \$1,000, \$1,300, \$1,300, and \$1,400.

Use equation 5-1:

FV = \$1,000 × (1 + 0.07)5 + \$1,300× (1 + 0.07)4 + \$1,300 × (1 + 0.07)3 + \$1,400× (1 + 0.07)2

FV = \$1,402.55 + \$1,704.03 + \$1,592.56 + \$1,602.86 = \$6,302

LG25-19 Future Value of Multiple Annuities Assume that you contribute \$200 per month to a retirement plan for 20 years.  Then you are able to increase the contribution to \$400 per month for another 20 years.  Given a 7 percent interest rate, what is the value of your retirement plan after the 40 years?

Break the annuity streams into a level stream of payments of \$200 for 40 years and another level stream of payments of \$200 for the last 20 years.  Use equation 5-2 for each payment stream and add the results:

LG25-20 Future Value of Multiple Annuities Assume that you contribute \$150 per month to a retirement plan for 15 years.  Then you are able to increase the contribution to \$350 per month for the next 25 years.  Given an 8 percent interest rate, what is the value of your retirement plan after the 40 years?

Break the annuity streams into a level stream of payments of \$150 for 40 years and another level stream of payments of \$200 for the last 25 years.  Use equation 5-2 for each payment stream and add the results

LG35-21 Present Value Given a 6 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of \$1,000, \$1,200, \$1,200, and \$1,500.

Use equation 5-3:

PV = \$1,000 ÷ (1 + 0.06)1 + \$1,200 ÷ (1 + 0.06)2  + \$1,200 ÷ (1 + 0.06)3 + \$1,500 ÷ (1 + 0.06)4

PV = \$943.40 + \$1,068 + \$1,007.54 +  \$1,188.14 = \$4,207.08

LG35-22 Present Value Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of \$1,000, \$1,300, \$1,300, and \$1,400.

 Document views 489 Page views 633 Page last viewed Fri Dec 09 14:05:15 UTC 2016 Pages 26 Paragraphs 801 Words 7019